BlackBerry Limited (BB) Q4 2020 Earnings Call Transcript

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BlackBerry Limited (BB -1.43%)
Q4 2020 Earnings Call
Mar 30, 2021, 5:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the BlackBerry Fourth Quarter and Fiscal Year 2021 Results Conference Call. My name is Seidi and I will be your conference moderator for today's call.

During the presentation, all participants will be in a listen-only mode. We will be facilitating a brief question-and-answer session toward the end of the conference. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn this call over to Tim Foote, BlackBerry Investor Relations. Please go ahead.

Tim Foote -- Head of Investor Relations

Thank you Seidi. Good afternoon and welcome to BlackBerry's fourth quarter fiscal 2021 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer, John Chen and Chief Financial Officer, Steve Rai. After I read our cautionary note regarding forward-looking statements, John will provide a business update and Steve will review the financial results. We will then open the call for brief Q&A session. This call is available to the general public by call-in numbers and by webcast in the Investor Information section at blackberry.com. A replay will also be available on the blackberry.com website.

Some of the statements we'll be making today constitute forward-looking statements and are made pursuant for the Safe Harbor provisions of applicable US and Canadian securities laws. We'll indicate forward-looking statements by using words such as expect, will, should, model, intend, believe and similar expressions. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the company believes are relevant.

Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. These factors include the risk factors that are discussed in the Company's annual filings and MD&A, including the COVID-19 pandemic. You should not place undue reliance on the company's forward-looking statements. The company has no intention and undertakes no obligation to update or revise any forward-looking statements except as required by law. As is customary during the call, John and Steve will reference non-GAAP numbers in a summary of our quarterly results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today, which are available on the EDGAR, SEDAR and blackberry.com websites.

And with that, I'll turn the call over to John.

John Chen -- Executive Chairman and Chief Executive Officer

Thanks, Jim -- Tim, sorry. Thanks, Tim. Good afternoon everybody and thank you for joining us today. I begin with three headlines for the quarter. The first headline is licensing. This quarter we entered into an excusive negotiation with a North American party for the sale of the portion of the company's patent portfolio primarily related to mobile devices, messaging and wireless networking. BlackBerry will retain rights to use these patents. Patents associated with the Company's strategic software and services business including Spark, QNX, IVY, Secure communication and critical event management will continue to be owned and managed by BlackBerry. The company has not yet reached a definitive binding agreement and negotiations are ongoing. The company limits its licensing activities in the quarter due to the negotiations and because of accounting rules which Steve will explain later. This results in licensing revenue being lower than expected.

The second headline is software and services. This quarter we saw a slight sequential revenue improvement from Spark and a continuing recovery for BTS. BTS had a good quarter despite vehicle production headwinds from the global chip shortage. Software and services billing improved strongly and are now back to the level of a year ago. The third headline is Blackberry IVY. Discussion with automakers in Tier 1s are progressing well and I'll touch on some of these exciting developments later.

Now let me get into more details. BlackBerry reported total company revenue of $215 million, software and services revenue was $165 million, licensing and others was $50 million, gross margin was 73%, earnings per share was positive $0.03, cash generated from operation came in at $51 million, total ending cash and investment as of February 28 was $804 million.

I will now turn out our business commentary starting with software and services. Our ongoing strategy is to safeguard the Internet of Things with intelligence and security. We achieved this by combining our 30 years plus of expertise -- security expertise with newly acquired technologies such as Cylance AI and machine learning. We currently serve the market in two different ways. The first is to provide cybersecurity for enterprise, particularly large, highly regulated verticals such as government, financial services and healthcare. Here we protect endpoints, networks and communications with our Zero Trust architecture.

The second is to embed technology to provide safety and security to the endpoint. Here our focus is currently largely on automotive, again a very large fast growing market. Starting from a QNX installed base of over 175 million cars on the road today, QNX and IVY in partnership with AWS have significant growth opportunities. Over-time, these two paths that I mentioned will intersect and provide tremendous opportunity for BlackBerry. Investment in smart mobility and smart city infrastructure will help drive this convergence, but obviously the market is too early.

We recognized the need to be louder when communicating our strategy and who BlackBerry is today. This month we launched a major new digital radio and print branding campaign across North America and the UK to get the message out powerfully into the marketplace. From a financial reporting perspective, starting this Q1 which is this quarter we are in, we intend to report software and services as two separate revenue lines, namely cybersecurity and BTS.

The cybersecurity line addressed include and addresses the cybersecurity endpoint management and critical event management markets. Our main competitors including other leading next generation endpoint security providers as well as notable UEM vendors. We addressed these markers with our AI-driven Spark, a fully integrated UES and UEM platform along with AtHoc and Secusmart. BTS addresses the embedded software and vehicle data analytics markets. Notable competitors including Auto Grade Linux, Android and Proprietary Operating Systems. Our QNX product offers the highest level in data functional safety and security, our BlackBerry IVY will provide an end-to-end solution for harnessing data in the car. We believe that this change will help investor to gain greater insight into the performance and opportunity of these businesses going forward.

Moving on to software and services metrics. ARR was approximately $458 million, slightly down from last quarter, primarily viewed as expected to the pandemic-related impact on BTS. Dollar-based net retention rate improved sequentially, from 90% last quarter to 91% this past quarter. Net customer churn remained low at around 1%.

Now moving on to BTS. As a reminder, QNX is by far the largest component of BTS. As we anticipated during last quarter earnings call, we saw improvement in both QNX design win, design phase revenue and production-based royalties. This improvement continued despite the challenges from the global chips shortage and its impact on auto supply chain. It's not fully clear what the impact will be on production volumes, at least [Indecipherable] how long would it last. However, we continue to expect improvement from BTS in the upcoming fiscal year. Our plan on returning to a pre-pandemic normal revenue run rate of around $15 million per quarter by mid-fiscal year assumes that the new challenges are overcome by that point.

Looking beyond the short-term headwinds though, Strategy Analytics, a leading research firm estimate that there will be a large expansion in the number of embedded system in a car by 2027. The estimated [Indecipherable] will be mainly driven by ADAS, which is advanced driver assistance systems, or as well as data gateways. These systems require the highest level of safety certification and are increasingly deployed on chips with higher compute power. Both factors play to QNX's strength, and recent wins, some of which I'll mention a little shortly, give real data point that support this trend. This validation strategy of focusing on safety, critical application and points to an increasing ASP per car.

During the quarter, QNX strengthened its leadership position in its safety, critical software. We announced enhancement to our hypervisor, which by the way is the only one in the market certified to the highest level of functional safety. We also announced a number of design wins including our Motional, a joint venture between Hyundai and Aptiv. We'll be using QNX Black Channel communication technology in its next-generation driverless vehicle. Also, Baidu announced that their machine maps a critical component of autonomous driving will also be built on QNX and designed into the new energy Aion models from GAC, which happen to be a leading Chinese electrical vehicle automaker. This announcement demonstrate that QNX is at the heart of the ADAS vehicle technology developments, positioning the business well for future revenue growth.

It was also confirmed at CES that QNX has been selected by Sony, the latest Sony new VISION-S car. Furthermore, Scania selected QNX as its primary operating system for its heavy-duty trucks. Overall in the quarter, QNX had 25 design wins with nine in auto and 16 in general embedded market or GEM. The auto wins were predominantly ADAS and digital instrument cluster designs, the GEM wins include a mail processing control system for UPS or -- for USPS, sorry, United States Postal Service, a connecting manufacturing plan system from GE and a next-generation eye surgery equipment from the leading medical device company.

We are delighted to report that now we have design wins with 23 of the world top 25 electric vehicle OEMs who together represent 68% of the global EV production. This is an increase by the way from 19 of the top 25 last quarter, with recent wins including Toyota and Honda. In the recent reports, Deloitte estimate that the CAGR, the compound annual growth rate for global EV growth sales will be around 29% over the next 10 years, and QNX is well-positioned to benefit from this growth.

Let me now provide you with an update on IVY. Since the announcement in December, the response from OEMs has been very positive. We have held many discussions, many workshops with a number of leading automakers and are pleased on how these discussions have progressed so far. Many used cases has already been discussed, showing the potential of this platform once creative app developers are able to build on it. Most of these used cases are being developed under NDA and can't be shared right now. However, one we can share is the Right to Repair initiative. Gardner, the leading analyst has identified BlackBerry IVY as the potential solution to the problem of safety and securely sharing standardized vehicle data with repair shops, without compromising either vehicle safety or the OEMs IP.

To support the development of the app ecosystems, this quarter we made an investment to grow the IVY R&D team. This includes starting an ecosystem development group, led by a new executive joining us shortly from a major OEM. We recently announced the creation of an IVY Innovation Fund. The fund will drive used case innovation and adoption of IVY by start-ups. We intend to start with a $50 million investment in the fund, portfolio company, by the way will also have access to up to $100,000 in AWS credit, as well as insight and guidance through the AWS Activate program, a program that has already helped develop hundreds and thousands of early stage start-ups.

We're also soon to unveil an IVY Advisory Council designed to shape and advise the IVY development community, focused on defining verticals' specific used cases. Among the first name to have already sign up our leading insurance company, technology company as well as telcos. Their input will complement the auto industry expertise provided by the top OEMs and Tier 1.

Following our IVY announcement, major players such as Ford and Google as well as Bosch and Microsoft had announced commitments to the vehicle data market. Because IVY is hardware operating system and cloud agnostic, we do not see these announcements are competition or as competition but rather opportunity for IVY to partner and add value. The vehicle data analytics market is both large and growing. McKinsey, in their monetizing car data report estimate that the TAM, the Total Available Market will be in the region of $450 billion to $750 billion per year by 2030. We recognize that this market is going to be competitive, but we feel very well positioned. While we're already working with OEM, in October, we expect to release the Early Access version of IVY. We also expect to ship -- we should start shipping the product in February of next year.

Now moving on to Spark. As a reminder, we launched our new Spark suites in May, and the Cyber Suite in October. Pipeline for our Spark suites grew strongly sequentially. The typical sales cycle is going to be nine months. So we're expecting a good second half for the fiscal '22. We continue to assess in upgrading our UEM install base to Spark, adding Unified Endpoint Security or UES. This year, we will start focusing on new logos for the Cyber Suite. Across Spark, we start to see strains in both renewal and upsell in our key verticals. Let me share some names with you, some wins. These include Q4 businesses with IRS, the United States Department of Commerce, [Indecipherable] Development Bank, the Scottish Government, as well as the Scottish police, the London Metro Police Services, and the US Marine cops, as well as Bell Canada, just to name a few.

On the service front, I must mention that none of our Guard MDR managed service customers were negatively impacted by the recent solo win screech. While I'm on that subject, the [Indecipherable] state-sponsored attack on Microsoft Exchange Server identified earlier this month was an example of threat actors leveraging patch vulnerabilities. The script control of our EPP product, Protect has demonstrated we can safeguard customer from this threat. Optics, our EDR product, provides additional protection.

We're excited about two upcoming products that will launch and are important part of our extended detection and response or our ex-DR strategy. The first is our cloud-based EDR product, Optics 3.0, due to be released this coming quarter and will expand data query and provide richer content for alert triage and threat hunting. The second is our BlackBerry Gateway product that will be the first to offer the zero-trust network access to both SaaS environment as well as on-prem applications, while enabling silence AI for faster detection and response. We will provide more detail at our Virtual Analyst Day next month.

Finally, brief words about Secusmart and AtHoc. We have been pleased with the progress made by Secusmart this fiscal year. Secusmart technology is now used by 18 governments worldwide, offering the highest level of security for voice and text communication. AtHoc had a strong position in federal government around the world, including protecting over 70% of US federal government employees. We see a significant opportunity for AtHoc in the enterprise, and following the quarter-end, just most recently that is, we announced the new BlackBerry Alert product. Alert is still on our critical event management expertise in a public sector, but with the additional features tailored to the needs of the enterprise such as integration with Microsoft Teams and ServiceNow. While it's much early in the stage of ourselves, we have already recorded enterprise with including Fujitsu.

I'll now turn the call over to Steve to provide more details about our financial performance. Steve?

Steve Rai -- Chief Financial Officer

Thank you, John. My comments on our financial performance for the fiscal quarter will be in non-GAAP terms unless otherwise noted. Please refer to the supplemental table and the press release for the GAAP and non-GAAP details. Please note that starting in the first quarter of our new fiscal year, we will no longer adjust GAAP revenue for deferred revenue acquired. This means that GAAP and non-GAAP revenue will be the same going forward and comparatives will be conformed accordingly.

We delivered fourth quarter non-GAAP total company revenue of $215 million and GAAP total company revenue of $210 million. Fourth quarter total company gross margin was 73%. Our non-GAAP gross margin includes software deferred revenue acquired, but not recognized of $5 million and excludes stock compensation expense of $1 million. Fourth quarter operating expenses were $140 million. Our non-GAAP operating expenses exclude $32 million in amortization of acquired intangibles, $22 million in impairment of long-term assets primarily due to rationalization of real estate due to the transition to remote working models, $16 million in stock compensation expense, $3 million for software deferred commissions expense acquired and $258 million fair value adjustment on the convertible debentures, which is a non-cash accounting adjustment largely driven by market conditions. Needless to say, this is due to the exceptionally high volatility and trading volume in the company's shares during the fourth quarter.

Fourth quarter non-GAAP operating income was $18 million and fourth quarter non-GAAP net income was $16 million. Non-GAAP earnings per share was $0.03 in the quarter. Our adjusted EBITDA was $35 million this quarter excluding the non-GAAP adjustments previously mentioned.

I will now provide a breakdown of our revenue in the quarter. Software and services revenue was $165 million. Software product revenue remained in the range of 80% to 85% of the total with professional services comprising the balance. The recurring proportion of software product revenue was approximately 90%. As john mentioned earlier, for the new fiscal year, we intend to report software and services revenue in two lines, cybersecurity and BTS. Licensing and other revenue was $50 million in the fourth quarter. Further to John's comments regarding negotiations relating to a potential sale, licensing activities have been limited not only due to the ongoing negotiations, but also because revenue from additional transactions that could have been completed in the quarter would have been treated as contingent revenue and deferred to future periods. Therefore, had negotiations not been in progress, we believe licensing revenue would have been higher.

Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were $804 million at February 28, 2021, an increase of $47 million during the quarter. Our net cash position increased to $439 million at the end of the quarter. Fourth quarter free cash flow was $48 million and cash generated from operations was $51 million and capital expenditures were $3 million.

That concludes my comments. I'll now turn the call back to John.

John Chen -- Executive Chairman and Chief Executive Officer

Thank you, Steve. For this upcoming fiscal year, our primary focus is on software and services growth. As mentioned earlier, we will not be making any non-GAAP adjustment to revenue starting this fiscal year, therefore any revenue outlook comments I will make today and Steve will make today, will be on a GAAP basis.

Because of the ongoing negotiation regarding the patent portfolio that we discussed, we are unable to provide a full-year licensing revenue outlook at this time, but I will give you some color at the end, so that we have some plans, but it's still moving -- a lot of moving parts on that. So, first us we anticipate double digit billings growth for both cybersecurity and BTS for the fiscal year '22, resulting in total software and services GAAP revenue in the range of -- sorry, got my notes all jumbled up -- resulting in total software and services GAAP revenue in the range of $675 million to $715 million. This represents a growth rate of between 9% to 15% from fiscal year '21.

Cybersecurity, which will include UEM, UES, AtHoc and Secusmart is expected to have full-year GAAP revenue in the range of $495 million to $515 million, of course, I'm sorry. BTS is expected to a full-year GAAP revenue in the range of $180 million to $200 million. For both cybersecurity and BTS, we anticipate revenue in the second half of the fiscal year to be stronger than the first half. Because of the ongoing negotiation regarding the patent portfolio that we discussed, there is uncertainty around the licensing revenue outlook.

However, appreciating that it will be useful to have an outlook for modeling purpose, the most conservative scenario in which sales -- we modeled that sales does not happen or does not complete, full year licensing revenue will be in the region of $100 million. In this scenario, we assume that negotiation and regulatory review continue for the first half and therefore, we expect revenue to be limited in the range of maybe $10 million to $15 million per quarter. However, we believe that the completion of the transaction will be beneficial to our shareholders. We will of course update you on any of the major developments.

This has been an unusual and challenging year to navigate. Despite the challenges, we had a strong year executing our technology roadmap, bringing 59 new products to market. That's up from 30 last year, in particular the Spark and Cyber Suite has made significant step forward. We also made significant progress with strategic partnership, both on the technology as well as the go-to-market perspective. Our IVY partnership with AWS has obviously been a particular standout.

I would like now to open the call for Q&A. Operator, will you please help us?

Questions and Answers:

Operator

Yes sir. And now we will begin the question-and-answer session. [Operator Instructions] For our first question, we have Mike Walkley from Canaccord. Mike, your line is open.

John Chen -- Executive Chairman and Chief Executive Officer

Good afternoon, Mike.

Michael Walkley -- Canaccord Genuity Group -- Analyst

Hi, John.

John Chen -- Executive Chairman and Chief Executive Officer

Hi.

Michael Walkley -- Canaccord Genuity Group -- Analyst

Congrats on all the announcements, busy year for you guys. I guess the first question from me is, just trying to understand the licensing negotiations a little better. Should you complete the sale, just the vast majority of your portfolio and you won't have any licensing revenue going forward. Is it really the whole portfolio or is it just a portion of that, just trying to gauge that.

John Chen -- Executive Chairman and Chief Executive Officer

Well, it's a major portion of our portfolio. As I said, we cover three major areas; cellular, wireless communications and networking. So things that is relevant but it's not useful to us today in our strategic software part of the business and we retained all the embedded and all the site ends and all the encryption and security technology patent.

Michael Walkley -- Canaccord Genuity Group -- Analyst

Okay, great. And then my follow-up question, just on the guidance, it would be great to breakout the two divisions. On the 9% to 15% growth is -- can you maybe help us think about the two areas, which one do you think will grow stronger. I'm assuming it's BTS, given the recovery in auto, but any color on how the two different divisions, cybersecurity and BTS might grow?

John Chen -- Executive Chairman and Chief Executive Officer

Yes. I think because this revenue -- first of all, let me clarify one thing. Billings, we expect double-digit growth in both Spark and BTS. From a revenue standpoint because it's subscription-based revenue, we expect single digit percentage growth in Spark and we expect double-digit percentage growth in BTS. So you are right in expecting BTS to have a strong growth because of the recovery.

Michael Walkley -- Canaccord Genuity Group -- Analyst

Yeah, the double-digit billings in both would be great. Okay, thank you.

John Chen -- Executive Chairman and Chief Executive Officer

Sure, absolutely.

Operator

For our next question, we have Daniel Chan from TD Securities. Daniel, your line is open.

John Chen -- Executive Chairman and Chief Executive Officer

Hey, Daniel.

Daniel Chan -- TD Securities -- Analyst

Hi, John. Just a question about how you're hoping to structure the deal for the patent sale. Should we expect ongoing royalties to come from, maybe you get a portion of the licensing fees that you are -- that the buyer will take or is this more of a one-time deal?

John Chen -- Executive Chairman and Chief Executive Officer

There is a majority of the deal will come in one-time early, but there is a tail that goes on. I can't give you the details of this, but for multiple number of years.

Daniel Chan -- TD Securities -- Analyst

Okay, now you mentioned in the past that you've had offers for the entire portfolio. So what's different now that's making you consider selling it.

John Chen -- Executive Chairman and Chief Executive Officer

There are two reasons. Number one is, I really think it is a wrong thing to sell the entire portfolio because there is so much of our -- we have an ongoing business in cybersecurity and an ongoing business in BTS which of course includes IVY and QNX. I think selling those portfolio will be extremely unwise for the company and for the shareholders. So I think the team were able to get connected with parties that are willing to address the portfolio part that is not being used by us today. So it just worked out from a business friendly point of view.

Daniel Chan -- TD Securities -- Analyst

And just one more if I may. If this deal does go through, any thoughts on how you will deploy that capital.

John Chen -- Executive Chairman and Chief Executive Officer

Yeah. We're going to invest in both cyber and we have an ambition in cyber, you know we have lost a couple of years because of our integrations and we have our product all caught up. So you will see us being more aggressive, in fact we ran an ad today Intelligent Security everywhere, an ad today. I just saw it on the New York Times and so we're just going to step-up in both people and spending and resources to go after the market and it is a huge, as you know very well, it is a huge market and no clear winner at this point and the barrier of entries are not that high. So we should be able to capture some new businesses. So we're going to invest in that and then of course, we're going to invest heavily on IVY in Vehicle Data Platform. It's very important to every OEMs whether they do it themselves, you work with somebody else or work with somebody like us is all very important. So our relationship with AWS in this case, it's a big plus. So those are the two business that we're going to invest in.

Daniel Chan -- TD Securities -- Analyst

Great, thank you.

John Chen -- Executive Chairman and Chief Executive Officer

Absolutely.

Operator

For our next question, we have Trip Chowdhry from Global Equities.

John Chen -- Executive Chairman and Chief Executive Officer

Hi, there. Hello.

Trip Chowdhry -- Global Equities Research, LLC -- Analyst

Congratulations for very challenging year, very good execution, John. Two quick questions I have. If you reflect upon the popularity of Apple iOS, it also started with the Innovation Fund that Apple created, but the difference is it was not just Apple, but they also got two or three venture capitalist along with it and today we know something, which is called app economy, which is a multi-billion dollar market and Apple is a prime beneficiary. When we look at IVY platform that you have, it is spectacular, like you are moving really at the speed of light, in October the product will be launched and I mean for the developers, for the developer preview, next year it will be in the market and you have the Innovation Fund exactly $50 million for the seed money Apple put in, but wondering do you have or have you thought about also bringing in venture capitalists also, and jump-start a sub-app economy, automobile applications economy or something along those lines. Have you thought on those? And also, do you think you could provide which will be very, very solid differentiation for your company is, if you could not just provide the money like what Apple did, but also provide intellectual property patent protection to each and every company that creates products or applications on your platform and take an equity stake in each one of those start-ups that will make your company completely little speculative, but it could be a much better strategy that Apple had with its iOS platform, any thoughts you may have. Then I have a follow-up question.

John Chen -- Executive Chairman and Chief Executive Officer

Okay. Great, Trip. Thank you. So we only -- initially we put up $50 million of this fund, and the objective is to make sure that we could build application and we believe that although we could build a very solid data in-vehicle data analytics platform without good applications and used cases, it would not be sticky, it would not be adopted. I think there are a lot of company that could build data platform, maybe ours is more secure X, Y, Z and so forth and having a partner like AWS help, but at the same time, you won't get the stickiness, so why do you want to -- I didn't want to learn the experience or learn the lesson twice. So this is important that early on, I start-up the enablement group that go out there applications and we build some ourselves, but the majority is going to have to be encourage start-ups and even established company that is interested in working with AWS cloud and working with BlackBerry QNX and all the other technology that we provide and buildup application on the IVY and also added that we are going to start an Advisory Council, which are vertical industry people, as I said, and they will then bring in some ideas that this is how I would see IVY help out in my business case going forward.

To answer your questions, with the limited fund that we have to establish initially $50 million, we will have to work with other VCs, and so now I haven't gone through the steps of try to pool them in and being a co-funder but we will have to work through their pipeline and identify target company that could benefit from, you know both the AWS -- what the AWS offers like which is $100,000 worth of free cloud usage, so that they can run their tests and the development, AWS also have a lot of tools and a lot of knowhow and navigate to help them. We of course provide them a test bed and the technology support and all. As far as IP is concerned, I don't think we're going to touch other people's IP unless that we see self, you know owning part of it, we're going to let the company own that IP, the company that we invest in. So I don't know whether I could help to protect them, but they obviously -- we could help them to accelerate the IP filing, we know we have a lot of people that knows how to do this very well.

Trip Chowdhry -- Global Equities Research, LLC -- Analyst

Very good, John. As you know today intellectual property and patents are the new gold. Second question --

John Chen -- Executive Chairman and Chief Executive Officer

Yes.

Trip Chowdhry -- Global Equities Research, LLC -- Analyst

I had was regarding the intellectual property portfolio, you have, the last time I counted it was more than 30,000 patents that you have --

John Chen -- Executive Chairman and Chief Executive Officer

38,000 to be exact.

Trip Chowdhry -- Global Equities Research, LLC -- Analyst

Oh, wow, that's amazing. Now I know it's very difficult to put the details of your ongoing negotiations, but ballpark figure, are we talking about the 20,000 patents which will be sold or 15,000 or 30,000, just a ballpark --

John Chen -- Executive Chairman and Chief Executive Officer

I bet not to do this to provide the answer. Sorry about that, because you know it's part of our negotiation and so the category I put out was probably the best you could get, if at least for now. The categories obviously are cellular, networking and -- Jeez, I'm missing one, cellular, networking.

Steve Rai -- Chief Financial Officer

And messaging.

John Chen -- Executive Chairman and Chief Executive Officer

And messaging. Sorry, cellular, networking and messaging. And then, you know encryption, security, IVY, QNX are all separated from this, are not included.

Trip Chowdhry -- Global Equities Research, LLC -- Analyst

Excellent. I think I had my questions answered, all the best and looking forward --

John Chen -- Executive Chairman and Chief Executive Officer

Thank you.

Trip Chowdhry -- Global Equities Research, LLC -- Analyst

For an exciting 2022 fiscal year.

John Chen -- Executive Chairman and Chief Executive Officer

Thank you, Trip.

Operator

For our next question, we have Paul Treiber from RBC Capital Markets. Paul, your line is open.

John Chen -- Executive Chairman and Chief Executive Officer

Hi Paul.

Paul Treiber -- RBC Capital Markets -- Analyst

Thank you so much and good afternoon.

John Chen -- Executive Chairman and Chief Executive Officer

Good afternoon.

Paul Treiber -- RBC Capital Markets -- Analyst

Just on the patent sale, the $100 million in patent license revenue that you expect for this year, if the sale goes through does the $100 million go away. So eventually all the patent licensing revenue goes with the sale and conversely, if hypothetically speaking, if the sale doesn't happen at all, should we think of patent licensing revenue being in that -- continue to have that, I think $250 million in the past is what you said on a [Indecipherable] basis.

John Chen -- Executive Chairman and Chief Executive Officer

Yeah. Paul, that's a good question. So this is an unusual year. So let's talk about, if the patent license goes through, if the sale goes through, we will have -- we will report a one-time gain of a reasonably big number, followed by a tail of up to seven years. So it will not go away to zero, there are some recurring -- that most of them will not be with us. But, so it will not be zero, but it will be quite small, if this happens -- sales go through with one big year in this fiscal year 2022. If the patent sale does not go through, then the first couple of quarters will be low, because if the pattern sale is being negotiated right now, I actually are unable to do more other negotiation going on. So the pipeline basically is frozen, but it won't go away. So if the patent sale does not go through, I may have to suffer a little bit for the first couple of two, three quarters and then we will then assume the target 250 a year patent licensing.

Did I answer your question?

Paul Treiber -- RBC Capital Markets -- Analyst

Yeah, that's very helpful. And I assume that the cash flow would be similarly aligned with those revenue numbers.

John Chen -- Executive Chairman and Chief Executive Officer

Unfortunately, yes. The cash flow will be similarly aligned.

Paul Treiber -- RBC Capital Markets -- Analyst

Okay, that's very helpful. And then the second one is -- a big picture with the stock having gone through the rally that has gone through finance theory would say your cost of capital, your cost of equity is lower, and so the question is, seeing the sort of new found enthusiasm and lower cost of capital, have you contemplated issuing equity at these levels seeing how it could enhance the strategy having more equity or more cash.

John Chen -- Executive Chairman and Chief Executive Officer

Yeah, that's a good question. It's been a constant conversation with various bankers from our strategic planning group and our M&A group. I today -- I'm not working on any specific thing, but we are open. I mean, we're not -- there is no principle that we won't do. The only thing that we won't do is we won't intentionally dilute our shareholders just to keep some money in the bank or on the balance sheet. I'd like to make sure that we have at least some idea of the usage. So when people come to me and say, by the way you could raise a converted zero percent and a premium of X percent up -- 40%, 50% up, let's say, yeah, I see that very attractive. But then I keep asking my people so, OK. Once you get the money, what do you do with it, because you have a dilution hanging over your head and so I don't know what to answer your question. I guess kind of just kind of explain how I think about it. I'm not against it. I know there is very attractive terms out there and at this level of equity, so but I want to do, make sure that we have a targeted use that could help the business first.

Paul Treiber -- RBC Capital Markets -- Analyst

And maybe another way to ask the same question is, for your strategic plan, you don't require a significant acquisition or deployment of capital to execute on that, the current plan that you have.

John Chen -- Executive Chairman and Chief Executive Officer

No, we do -- the plan I gave you, 9% to 15% growth does not assume any acquisition.

Paul Treiber -- RBC Capital Markets -- Analyst

Okay, thank you.

John Chen -- Executive Chairman and Chief Executive Officer

Sure.

Operator

For our next question, we have Paul Steep from Scotia Capital Markets. Paul, your line is open.

John Chen -- Executive Chairman and Chief Executive Officer

Hi, there.

Paul Steep -- Scotia Capital Markets -- Analyst

Hey, John. Just recognizing it's challenging with situation with licensing. But I guess with the proceeds, if we assume this proceeds would, how should we think about deploying that capital. I know you answered it earlier, but I guess the point being, is it envision that you would look to do like some type of a strategic or transformative M&A to materially accelerate growth in the business I think becomes the question. And I do have a quick follow-up, that's somewhat --

John Chen -- Executive Chairman and Chief Executive Officer

Yes. Paul, it's really somehow depending on the target out there. The answer to your question is I will always love to do that. I really do. And so if there is also a question of affordability, but especially in the auto space, in the auto tech space, I think with our position with QNX and stuff we're doing on IVY with Cylance's technology that could go into a car, I think we are well positioned in terms of what we could put in. There might be some acquisition we need to make to further growth rate of our revenue. That will be an interesting target and you know today there is no specific target I have in mind. My people always have a list of names that they do look at, but I don't have any specific thing. But the answer to your question is the usage, those will be of a priority usage for us.

Paul Steep -- Scotia Capital Markets -- Analyst

Okay. And then maybe related let's set aside whatever is going to occur with the patent sale will transpire or not, if that's the case, might be. Just dialing back to your comments earlier in the call. Can you talk to us about how we should think about the level of spend. I know you're not guiding EBITDA or free cash flow and I respect why, but maybe just help us put it in context, I think you talked about accelerating increased growth. But then when I look at the spend and I know maybe Q4 isn't the best spot to look, sales and marketing is up year-on-year 10%. I know it's got stock-based comp in there, but R&D actually offset it. So should we think net that you're actually dipping in and we might go negative a little bit or no.

John Chen -- Executive Chairman and Chief Executive Officer

No, that's not our intent. We have a reasonably large number of hires mostly in sales and marketing -- sales and few marketing. In our plan that I just provided you, I mean, I know you're right, I'm unable to give you the EPS guidance and then cash flow guidance only because I have the -- you know the licensing part is shifting so much, so we didn't want to go there at this point, but so the answer to your question, it was not intended to reduce many. However, we are taking reduction into G&A. We are also going to take reduction in real estates. If you notice that, as Steve had mentioned, we have an impairment charge of $22 million and a lot of them related to real estate is because we decided to cut down our real estate footprint by maybe up to 25%. And this way that we will have after the pandemic, we will have roughly about 20% to 25% of our team members that will be working remotely on a rather permanent basis, we will provide some hoteling offices. And I think you see that in many companies, especially in kind of a software tech company, we decided we don't want to go 100% because we want to maintain a level of creativity and personality involvement, but -- so we're going to take some money from infrastructures, we're going to take some money from IT and somewhat a consolidation work over there and then we will then fund engineering and most of the fund go to market.

Paul Steep -- Scotia Capital Markets -- Analyst

Great. I'll just ask one last quick clarifying one. Can you just comment in respect that it's difficult, but like, obviously we had this situation in Japan relating to chips and automotive. What sort of the broader mood, John, in terms of the base obviously these decisions don't get made in the vacuum or overnight, but is there overall, maybe a bit of a pause going on or people are still moving forward with projects and all passed on.

John Chen -- Executive Chairman and Chief Executive Officer

So far with the 25 design win we have in the quarter, with some really big name wins, Toyota, Honda in EV, Scania in trucks in Sweden and other things -- other wins that we have. So far the auto space are still very vibrant from a design win standpoint, then eventually will hit us. I just -- I'm following what GM and Ford has said publicly that GM has stated that the second half of this year, the chip shortages issues will be overcome and they assume reduction of the three shutdown factories right now. So that's why we said when we do our planning today, we assume that we will continue to win design wins in QNX that we will then have developed a license as revenue and hoping that we'll do some more professional services and then the production obviously kicked into the future, it does affect us immediately a little bit, but since we are in the recovering mode, I think it's being absorbed and somewhat. So our guidance of $180 million to $200 million for the year assume that this problem -- shortage problem -- plant shutdown problem ends in mid-year. Now that's just a stake in the ground, I mean we have to model it somehow somewhere, if that prolonged, then that will prolong our recovery but I'm hoping to minimize it as best as we can. Not every plants are shutdown by the way obviously you know that.

Paul Steep -- Scotia Capital Markets -- Analyst

Yeah. That helps. Thanks guys. All the best.

John Chen -- Executive Chairman and Chief Executive Officer

Yeah, absolutely.

Operator

Next we have Steven Li from Raymond James. Steven, your line is open.

John Chen -- Executive Chairman and Chief Executive Officer

Hi there --

Steven Li -- Raymond James Limited -- Analyst

Hey, John. How profitable are these licensing revenues. Is the gross margin, for example, higher than your corporate average?

John Chen -- Executive Chairman and Chief Executive Officer

Yes. Which is painful for us in the first couple of quarters, because we expect one way or the other, it is going to be a low revenue -- low level, but the answer is yes, it's higher than the corporate number by significant percentage.

Steven Li -- Raymond James Limited -- Analyst

Okay. So John, if the patent sale goes through, could your EBITDA turned negative for example.

John Chen -- Executive Chairman and Chief Executive Officer

Yeah, it could be. I am hoping to -- if the EBITDA goes negative, I didn't calculate, but if EBITDA goes, the EPS will go negative, but I am hoping that we start register some growth in software and services to offset it.

Steven Li -- Raymond James Limited -- Analyst

All right. Got it. Thanks.

John Chen -- Executive Chairman and Chief Executive Officer

Absolutely.

Operator

We don't have any further questions at this time.

John Chen -- Executive Chairman and Chief Executive Officer

Okay.

Operator

I would now like I turn the call back over to John Chen, Executive Chair and CEO of BlackBerry for closing remarks.

John Chen -- Executive Chairman and Chief Executive Officer

Thank you very much. I don't have any remarks, and thank you all for your interest in the company. We will have a very interesting year ahead of us here. You know, we believe our software services and especially, when we separate out the two lines. I know we already know the Sparks will do some growth in billings, revenue growth will come in mostly from BTS and license things, it could go either way and we'll keep you posted. And so I'm sorry, its been late in the evening in the East Coast. Thank you all very much for attending today's call and have a great evening.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Tim Foote -- Head of Investor Relations

John Chen -- Executive Chairman and Chief Executive Officer

Steve Rai -- Chief Financial Officer

Michael Walkley -- Canaccord Genuity Group -- Analyst

Daniel Chan -- TD Securities -- Analyst

Trip Chowdhry -- Global Equities Research, LLC -- Analyst

Paul Treiber -- RBC Capital Markets -- Analyst

Paul Steep -- Scotia Capital Markets -- Analyst

Steven Li -- Raymond James Limited -- Analyst

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